Where assessee was putting up construction not for self occupation, but for business of selling a portion of building and leasing over premises it could not be absolved of its obligation under section 40A(3)

[2012] 19 taxmann.com 105 (Karnataka) HIGH COURT OF KARNATAKA Sanu Family Trust DECEMBER 7, 2011Section 40A(3) of the Income-tax Act, 1961

 - Business disallowance - Cash payment exceeding prescribed limits - Assessment year 1996-97 - Whether where assessee was putting up construction not for self occupation, but for business of selling a portion of building and leasing over premises it could not be absolved of its obligation under section 40A(3) and, therefore cash payments made by assessee in excess of Rs. 20,000 could not be allowed - Held, yes [In favour of revenue] 

Section 40(a)(ia) cannot be invoked in respect of reimbursement which are not routed through profit and loss account to be claimed as deduction

[2012] 19 taxmann.com 109 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'A'Sharma Kajaria & Co.FEBRUARY 17, 2012

Section 40(a)(ia), read with section 194J, of the Income-tax Act, 1961 - Business disallowance - Interest, etc., payable to resident without deduction of tax at source - Assessment year 2006-07 - Whether question of disallowance under section 40(a)(ia) can only arise when something is claimed as a deduction in computation of business income - Held, yes - Whether reimbursements simplicitor, being profit neutral, are not routed through profit and loss account to be claimed as deduction and, therefore, no disallowance under section 40(a)(ia) can be made in respect of reimbursements - Held, yes - Assessee was a firm of solicitors and advocates - During assessment proceedings, Assessing Officer noted that assessee had made payments to various lawyers for their professional services, but had not deducted tax at source under section 194J from same - He, therefore, disallowed such payments under section 40(a)(ia) - Assessee contended that amounts paid to lawyers were reimbursed by assessee's clients and when deduction was not claimed in respect of those amounts, there could not be any occasion to invoke section 40(a)(ia) - Commissioner (Appeals), however, upheld disallowance made by Assessing Officer - Whether without there being any categorical finding to effect that payments to outside lawyers were claimed as deductions in computation of profits, disallowance under section 40(a)(ia) in respect of such payments could be sustained - Held, no [In favour of assessee] 

Assessee has not credited interest in its books of account and such interest has not been paid in relevant year, and assessee claiming deduction in computation if income on merchantile basis, mandate of section 194A cannot be attracted to further invoke disallowance under section 40(a)(ia

Held by ITAT MUMBAI BENCH inPranik Shipping & Services Ltd. on 25-01-2012, [2012] 19 taxmann.com 107 (Mumbai - Trib.

"........................... the assessee did not credit such interest in the books of account under any account. Rather the deduction has been claimed on the basis of mercantile system of accounting straightway in the computation of income, without routing it through books of account, which has been held by us to be allowable in an earlier para. In view of the fact that the assessee has not credited the amount of such interest in its books of account and further such interest has not been paid in this year, the mandate of section 194A cannot be attracted. Rather this provision comes into play only when either the amount is credited in the books of account or interest is paid, whichever is earlier. Once there is no liability to deduct tax at source u/s 194A, the provisions of section 40(a)(ia) cannot be attracted.

14. Probably this loophole was not contemplated by the Legislature while enacting the relevant provisions, which has been exploited by the assessee as a measure of tax planning. We cannot remedy the situation. In this year the deduction has to be allowed. It will be open to the Assessing Officer to consider the later development of actual payment or non-payment of interest to M/s Sahara India Financial Corporation Limited and deal with it as per law in such later years. This ground is allowed.

15. In the result, the appeal is allowed.

As an interim relief, retired members of Tribunals are permitted to practice before Benches where they had not remained posted and held Courts temporarily or on regular basis

[2012] 19 taxmann.com 118 (Allahabad)

HIGH COURT OF ALLAHABAD

Dinesh Chandra Agarwal

v.

Union of India*

JANUARY 19, 2012

Rule 13E of the Income-tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963 - Ban on practise - Rule 13E notified on 3-6-2009 imposed a ban on practise by retired members before Tribunal - Petitioner, a retired member of Tribunal, filed writ petition to quash aforesaid rule 13E on ground that same is ultra vires to provisions of section 288 of Income-tax Act, 1961 as well as to provisions of section 30 of Advocates Act, 1961 - Whether rule 13E appears to be offensive in two respects; namely, that retired members have been completely barred from practice before Tribunal, and secondly, that aforesaid rule 13E has been interpreted to apply retrospectively in judgment rendered in case of Concept Creations v. Addl. CIT [2009] 120 ITD 19 (Delhi) (SB) by Tribunal, Delhi, beyond its pale of competence as it has jurisdiction to decide only matters relating to tax appeals as contained in Income-tax Act vide sections 253 and 254 thereof - Held, yes - Whether till next date of hearing, operation of impugned rule 13E as well as judgment in case of Concept Creations (supra) shall remain stayed insofar as they impose a complete ban on practice by retired members before Tribunal - Held, yes - Whether, thus, it would be open for retired members to practise before Benches of Tribunal where they had not remained posted and held courts temporarily or on regular basis - Held, yes [In favour of petitioner]

Depreciation on regularisation fee of hospital building held deductible

Dr. K. Senthilnathan FEBRUARY 15, 2012 [2012] 19 taxmann.com 135 (Chennai - Trib.) (TM)

Regularization fees paid by assessee to CDMA under Tamil Nadu Town and Country Planning Act for condoning violations during construction of hospital building has a direct nexus to construction of hospital building; therefore, only account to which regularization fees paid could be booked is construction account of hospital building; amount of regularization fee paid by assessee cannot be excluded in computing eligible depreciation allowance